Housing Starts Rebound

Twenty-two percent uptick unexpected.

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US Housing starts rebounded in February from a record low, but this probably doesn't mean the bottom has been reached.

Construction started on 583,000 houses at an annual rate, a 22% jump from January and the largest increase since 1990, the US Commerce Department reports.

The huge jump suggests builders pulled back too much in last year's credit crunch. But future demand for housing will be dampened by the shaky job market.

The US Bureau of Labor Statistics says unemployment rose to 8.1% in February from 7.6% in January. Some analysts predict the unemployment rate will climb to about 10% this year. Rising unemployment suggests that most buyers will sit on their cash. Falling home prices and the downward pressure created by foreclosures will make existing houses more affordable. This is likely to depress demand for newly built housing.

Single-family houses grew 1.1% to an annual rate of 357,000, while multi-family dwellings, including townhouses, condos and apartments, grew to 226,000 last month from 124,000 in January, an increase of about 82%. Surprisingly, the Northeast led the nation with an 89% increase in home-building activity, the Commerce Department reports.

Building permits, an indicator of future construction, rose 3% to an annual pace of 547,000 unites. The lower increase in permits suggests that new home construction may slow in the immediate future.

The market sees no immediate turnaround. Homebuilders Lennar (LEN), Pulte Homes (PHM), D.R. Horton (DHI) and Centex (CTX) have rebounded from their lows, but are well below 52-week highs.

Retail sales, perhaps the best gauge of consumer confidence, have been mixed in recent months.

US retail sales edged up a revised 1.8%, in January, ending a 6-month decline. Analysts expected sales to drop 0.8% in January. Sales fell 3% in December, the weakest holiday season in about 35 years.

January's increase, revised upward from 1%, was welcome news, but sales for December and November were revised downward by 0.3% each. Worse, retail sales were 9.7% lower last month than in January 2008.

The mixed signals in housing and retail sales don't suggest a breakout, but the data shows the current downturn isn't Armageddon. Look for the economy to bump along despite occasional good news like an uptick in housing starts. Most economists don't see a turnaround until 2010.

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